One of the biggest debates in the bitcoin community today is what, exactly, bitcoin is. Should bitcoin be a form of electronic cash – easy to transfer for any purchase anywhere in the world? Or should bitcoin be like a gold bar – a great way to store wealth but inefficient for everyday purchases? Or should bitcoin be both?
That’s the question the bitcoin community will need to answer moving forward. Some see bitcoin as the tool outlined in Satoshi Nakamoto’s whitepaper: they see it as a peer-to-peer form of electronic cash usable in all types of situations. Others believe bitcoin should not be usable; instead, bitcoin should be exclusively designed as a store of value.
Can bitcoin really be a store of value without utility? If bitcoin isn’t usable as a daily payment method, then can it really survive as a store of value?
That’s the question asked by John Blocke in a blog post earlier this week. Blocke was motivated to write the blog post after Vinny Lingham asked an interesting question on Twitter:
Assuming the Bitcoin price doesn’t recover soon, at what price point would you stop believing in the “Store of Value without Itility“ narrative?
— Vinny Lingham (@VinnyLingham) September 15, 2018
57% of respondents to that poll wrote, “I won’t stop believing.” In other words, even if bitcoin becomes unusable, and even if the price of bitcoin sinks to below $1,000, they’ll continue believing in bitcoin as a store of wealth. The other responses to the poll included, “I don’t believe in it now (21% of respondents), “<$3000” (15%), and “<$5000” (7%).
How Can Something Have Value If It’s Not Useful?
Obviously, some people take issue with the fact that bitcoin can be a store of value if it’s not useful. If something isn’t useful, then why does it have value? Does scarcity alone lead to value?
“A cup is not being useful when it sits in the cupboard, only when you drink from it,”
“A bicycle is not useful when it sits in the garage, but when you ride it. We can say that a bicycle or a cup are useful items, even when not currently in use, but it is the ability to make use of them when needed that grants them this label of utility.”
When a cup or bicycle breaks, the value of that item disappears. That’s because the item has lost its ability to perform its intended task.
This flies against the prevailing bitcoin narrative pushed by certain members of the bitcoin community. Certain members of bitcoin believe bitcoin’s whitepaper is no longer relevant, and that bitcoin needs to embrace a new identity as a scarce digital file that somehow has value:
“The prevailing narrative pushed onto newcomers and shared as gospel by “Bitcoin experts” like Samson Mow, Tone Vays, and Seinfeld Ammous, is that Bitcoin’s originally intended utility as a decentralized payments network is no longer relevant.”
These people talk about things like how “the whitepaper is not the Bible” and “Satoshi is not god” or that “Satoshi had no way of knowing how the system would evolve and didn’t really know what bitcoin would become in the future.”
Blocke believes these people who push the “store of value without utility” myth “are blind to the gaps in their logic.”
Isn’t Gold A Store Of Value Without Utility?
Some people on the “bitcoin can be a store of value without utility” side of things argue that gold has value even if it doesn’t have utility. Blocke believes this argument is stupid, to say the least:
“Gold is considered useful as a store of value because people know with certainty that when the time comes to actually use it, e.g., to sell it or trade it (or smelt it or forge it), that there will be someone else to buy it with little enough fuss. Gold is useful as a store of value because it is universally regarded as something that has value. Gold has value, and it can be an asset, but it is not money.”
Bitcoin is different because it was invented as a new form of money. The purpose of bitcoin was to create a superior version of money. Bitcoin was built to allow people to transfer large sums of money around the world at minimal cost.
Bitcoin, as the first words of the whitepaper explain, is a “peer-to-peer electronic cash system.”
Bitcoin Is Most Valuable When It Combines The Best Attributes Of Cash And Gold
This is where Blocke makes a crucial point: bitcoin has historically had value because it combines the best attributes of cash and gold. Bitcoin does something we can’t do with cash – use it as a secure store of value.
At the same time, bitcoin does something we can’t do with gold: transfer it daily at the cost of a few pennies; store it in a wallet; store it in our brains; store it in any way you choose.
“More revolutionary still, Bitcoin also had many of the properties that make gold valuable while shedding the properties that make it inconvenient. Bitcoin takes the best attributes of both cash and gold and boils them down to their purest essence.”
Then, suddenly, the bitcoin network was broken when BTC developers refused to scale. Transaction fees skyrocketed to $50 per transaction. Users were waiting days for a simple bitcoin transaction to be processed. The bitcoin network, for all intents and purposes, was broken. It was cheaper and faster to use legacy payment systems. Bitcoin’s entire value proposition disappeared:
“In late 2017, one could not reliably use Bitcoin (BTC) for payments. The fees and confirmation times were too cumbersome for the vast majority of use cases, a fact that was celebrated by the Bitcoin Core team. Not only was the payment functionality completely deprecated, it wasn’t even useful for “storing value” because it couldn’t be reliably moved to an exchange to sell it when needed. Compounding the embarrassment of the “store of value” crowd is that the people who were buying BTC at $20,000 (because they were told it’s a “good store of value”) have seen their BTC plunge in value by more than 70% since then.”
BCH Is The Only Version Of Bitcoin “That Continues To Function As A Useful Form Of Money”
Because of all of the BTC versus BCH scaling controversy from 2017, Blocke claims that the only remaining utility of BTC today “is for its use as a speculative plaything.”
A $1 transaction fee might be insignificant when transferring $20 million to another person on the internet. But a $1 transaction fee makes bitcoin impossible as a daily payment protocol. You’re not going to buy a cup of coffee for $3 and pay a $1 transaction fee, for example. Someone in the developing world who makes $3 a day can’t afford a $1 transaction fee.
Blocke brings up the point that bitcoin isn’t dead:
“BTC may be broken, but Bitcoin, the revolutionary peer-to-peer electronic cash system invented by Satoshi Nakamoto, is not dead. In August 2017, a group of long-time bitcoiners fed up with the stubbornness of the Bitcoin Core developers took the advice of the BTC crowd and “forked off,” creating a parallel network that continues to function as a useful form of money: Bitcoin Cash (BCH).”
Bitcoin Store Of Value Conclusion
Blocke sums up his argument with the following:
“Bitcoin’s value (and its ability to store value) are inseparable from its usefulness as a form of money and its ability to grow and be adopted by more and more people around the world.”
Blocke, like many others in the bitcoin community, finds it bizarre that people believe bitcoin can succeed even if it has no utility. Are people really going to pay $6,500 for a piece of digital code simply because it’s scarce? That seems to be the argument the BTC side is making.
Bitcoin works best when it combines the best features of cash and gold. That’s why Blocke feels that BCH is the best version of bitcoin moving forward – and the only true representation of the bitcoin outlined in Satoshi’s whitepaper.